How to Buy a Bank Foreclosure?

Foreclosures represent prime buying opportunities for homeowners or real estate investors. Buying one can be tricky, though, depending on the state or jurisdiction in which you are attempting to buy the home, and the process may be different where you live.

In general, buying a bank foreclosure means taking over the legal rights to a property from the lender because the previous homeowner was not able to pay the mortgage. These sales are usually conducted at county auctions or trustee auctions, although you can purchase foreclosures directly from the bank itself.

The first step is to find a foreclosure that you may want to buy. Foreclosure listings have up-to-date records of foreclosures up for grabs in various states and areas. These often are your best bets for finding foreclosures in a timely manner. You can also go through a real estate agent, but this may be slower and more expensive than going through listings.

Once you have found a property, you may have to hire a real estate agent in some jurisdictions. Some sellers require represented buyers. The next step is to check out the property and assess it for its current condition. It also helps to take this time to prequalify for a mortgage with your lender.

Next, check the property to see if it has tax liens. If it does, you need to find out who is liable for those payments. Also, you run the risk of having the IRS repossess the home if there is a federal tax lien on the property, even after you buy it.

To avoid the uncertainty of public auctions, try to deal with the lender itself or the assigned broker. Tender an offer to the lender and negotiate with the lender. Some offer below-market interest rates and steep discounts. If you want to go the auction route, try for a reasonable bid that isn’t too low. Most foreclosures sell for 80-90% of the market value. This prevents you from losing out to higher bidders.

Keep in mind that if you purchase a bank foreclosure – or an REO home – you typically do not have to deal with tenants, as they will have already been removed.